IAG says severe storms & hail hit reinsurance retention

Australian primary insurance giant IAG has reported that recent severe storms and hail in Australia in October are set to drive a reinsurance recovery for the company, as its net loss hit the retention on its catastrophe reinsurance program.

IAG said that the storms and hail that struck South Australia and Victoria between 27th and 29th October and SE Queensland on 30th October have already driven approximately 14,000 claims, a number which is expected to rise further over coming days.

As a result, the insurer said that “the net cost for this event is anticipated to be $169 million, the maximum retention for a first loss under IAG’s catastrophe program.”

IAG renewed its reinsurance program at the mid-year, with its per-occurrence retention set at that figure, so it looks like the gross loss above that attachment point is now set to flow to IAG’s reinsurance program partners.

IAG noted that is had raised its natural perils allowance significantly for this fiscal year 2022, but warned that “claims experience year to date has been seasonally unexpected and has exceeded the assumptions underpinning the increase.”

The result is that IAG expects to go over budget, suggesting more of its catastrophe claims could be flowing to its reinsurance partners as a result.

The company said that, “Following the South Australian hail and Victorian wind event, and other events that impacted the second half of October, IAG has increased its expectation for FY22 net natural perils claim costs to $1,045 million, compared to the previous assumption of $765 million.”

The catastrophe losses are broken down as: $204 million for events incurred in the three-month period ending 30 September; another $142 million for weather events across Eastern Australia in October; $169 million attributable to the South Australian and Victorian event; and $20 million of attritional events incurred in October.

IAG’s net natural perils claim costs have exceeded IAG’s previous assumptions by approximately $280 million, the company explained.

While the updated FY22 forecast now includes roughly $510 million for perils events for the remainder of the financial year, IAG said.

On top of this, IAG said that its post-quota share aggregate reinsurance deductible is now eroded by some $209 million, of the $270 million, meaning reinsurers on that aggregate layer of its program are also facing an incresing chance of recoveries.

The aggregate cover provides $236 million of protection, post-quota share.

After allowing for the quota share reinsurance, IAG said that its combination of catastrophe reinsurance protection means it now has a maximum event retention of $95 million from November 1st.

Interestingly, Australian insurance rival Suncorp had recently reported its estimated natural catastrophe claims costs had reached between $382 million and $492 million year-to-date, still well below its $980 million budget and with none of the events,including these recent October storms, having got close to its $250 million reinsurance program retention.